Thoughtful Commentary on Pension & Investment Issues
The Globe and Mail has been featuring all week, an expansive examination of the Canadian retirement landscape. Topics covered have included:
- underfunding
- sponsor bankruptcy
- coverage
- financial planning
- hybrid pension plans
- coverage for small employers
- Canadian pension from the global perspective
If you are interested in reading more, the complete series can be found here. The last part of the seven part series will be posted tomorrow.
Posted in Uncategorized.
– October 23, 2009
Summary of changes
The Federal Finance Minster Jim Flaherty announced, after meetings with his provincial counterparts, proposals to make some changes to the Canadian Pension Plan (CPP). The changes are designed to increase the flexibility of the CPP and to adjust the rates for early and postponed retirement:
- Allow individuals to draw on CPP benefits early and continue working and contributing to the CPP (along with the required CPP contributions from their employer). This implies the removal of the current Work Cessation Test.
- Individuals who are 65 and older that draw on CPP, but continue to work can continue to make contributions to the CPP (along with the required CPP contributions from their employer).
- Early retirement reductions will change from 0.5% per month to 0.6% per month (phased in over 5 years, commencing in 2012).
- Individuals who wait until age 70 to commence CPP benefits would see their benefits boosted by up to 42% (from 5% per month to 7% per month), compared to the current maximum increase of 30% (phased in over 3 years, commencing in 2011).
- Increase the amount of low / no earnings years that can be dropped off of the career average earnings used to determine benefit payout (from the current 15% to 16% in 2012 and 17% in 2014).
These changes will need to be approved by both the Federal Parliament and the Provinces that belong to the CPP. Stay tuned, as we will keep you posted on the progress of the proposed changes.
Posted in Governance.
– October 8, 2009
Unique Tool / Capabilities
5) What unique capabilities and deliverable can we expect from your firm? How will these be of benefit?
In short, you will want to see what tools are available that will assist you, as a busy fiduciary, make better decisions and monitor the investments. Leading consulting firms have the ability to make the complex intricacies of investing and distill them into a clear and concise format.
Ask yourself, will these unique services benefit the fiduciaries and will these services benefit the members? The answer of course should be YES!
Posted in Investment Consulting.
– September 26, 2009
Service Model
4) Describe your service model in terms of deliverables and the mechanism for delivery?
As a fiduciary will want to know what to expect from your consultant, in terms of level and detail of reporting. Who will attend meetings to present reports and discuss results. You will want to ensure that the service model aligns with your requirements (i.e. is it designed to encourage long-term relationships?, is it project orient?, is designed to maximize their profit and promote short term thinking?) and that the process the consultant uses to make recommendations is transparent.
Posted in Investment Consulting.
– September 24, 2009
Fees
3) How is your firm compensated by your clients (all sources monetary or otherwise)?
There are various ways a consulting firm can get paid (i.e. hourly fee, retainer, on a project basis, commissioned selling or directed trading commissions).
You will also want to be able to monitor the total fees generated and ensure that they are appropriate based on the value added provided by the consultant and compared to industry norms.
Be aware of fee arrangements that may not be in your best interest. An example of this would be an arrangement that motivates an unscrupulous consultant to generate extra revenue by replacing a manager that is currently out of favour, for temporary reasons, to generate extra revenue. In a retail investment environment, this practice is known as ‘churning’.
Posted in Investment Consulting.
– September 23, 2009
Conflicts
2) What other services does your firm, or a related entity, provide? Where these services could create a conflict of interest (perceived or otherwise), how does your firm manage this to ensure that you are able to act in the best interest of the client?
As a fiduciary, you will want to ensure that there are no lines of business within the firm, or alliances with other firms, that could possibly create a conflict of interest or impair the consultant’s ability to offer unbiased advice.
While having a plan to manage a potential conflict of interest is a must, consulting firms that have no ties or affiliations with investment management firms, or other financial institutions and who do not offer services that could conflict with their consulting business are best positioned to provide a client with unbiased advice on investment issues.
Posted in Investment Consulting.
– September 22, 2009
Many organization know they could benefit from the professional advice of an investment consultnat or pension consultant, but do not know where to find one that will be appropriate for their organization. Added to this, is the fact that some consultnats have imbedded conflicts, or service models that do not fit all plan sponsors’ needs or budgets.
We put together some questions that plan sponsors should keep in mind when looking in the market for consulting support. These questions, while by no means exhaustive, are a good place to start. If you are in the market for a consultant, or are currently working with one, you will want to ensure you are comfortable with their answers to each on of the following 5 questions:
Expertise
1. What are your firm’s and your individual experience consulting to other similar institutional investors? What specialized tools and research does your firm provide and how does this benefit your clients?
You will want to ensure that both the firm and the individual involved have the necessary skill and expertise to provide the services and advice you require. Both the firm and individual should be established in the industry and be committed to their consulting business.
Stay tuned throughout the week as we will add a new question each day.
Posted in Investment Consulting.
– September 21, 2009
The Office of the Superintendent of Financial Institutions (OSFI) has issued a Draft Disclosure Guideline for Defined Contribution Pension Plans.
According to OSFI the guideline aims to “inform the pension industry of the general principles as well as more detailed requirements that OSFI will expect to be disclosed to plan members, eligible employees, and spouses as required by the Pension Benefits Standards Act, 1985 and the Pension Benefits Standards Regulations, 1985.”
Proteus is currently reviewing this document to provide commentary to OSFI by the December 31, 2009 deadline for feedback on the proposed Disclosure Guidelines.
As a reminder, at this point these draft guidelines would only impact federally regulated pension plans. Most pension plans are regulated by provincial bodies.
Posted in CAP Governance.
– September 11, 2009
Much has been discussed in the media and at the investment committees over the last few years regarding liability driven investing (LDI) at both the defined benefit pension plans and endowment / foundations.
There is still a lot of confusion in the market regarding LDI, what it is, how to implement it and the benefits to plans if they do. We have found this short article (”Liability driven investing and the reassessing of risk”) from TD Asset Management useful in answering these types of questions.
As Kevin and Dino explain, LDI is not a product, or a single investment solution, rather it is a way of thinking about investing and the purpose of an investment program. Focus shifts from simply beating arbitrary benchmarks and universe peers to a focus on meeting the promises (or liabilities) of the pension fund, foundation or endowment.
Posted in Investment Consulting, Liability Driven Investing.
– September 1, 2009
Does a year of near historic economic upset and market volatility warrant a new perspective in terms of investing funds for individuals, endowments & foundations, or oversight responsibilities for pension committees?
With the changes we have seen in the last year we can pretty much conclude that most people had an emotional and perhaps even a financial heart-attack with so much change.
First, let’s look at pension committees. Are they ready for a change and should they adopt change?
Pension committees are considerably more open to change than individuals. This is fueled by the standard of care required by a fiduciary which under the Pension Benefits Act requires care, diligence, and skill in dealing with the property of another person.
The greatest area for pension committee improvement is additional external resources dedicated to meet their plan oversight objectives. This brings outside perspective to the committee as well as specialized resources that are not available or not practical in terms of use by plan sponsors. Evaluation of investment funds goes well beyond a historic look at performance and established benchmarks set by the fund manager. The specialized tools and databases that provide modeling, attribution, and performance characteristics are not used by plan sponsors as they require significant investment and operational knowledge. In addition the outputs of multiple database sources require interpretation of results. The demands and expectations of fiduciaries to use specialized and expert knowledge to meet their responsibility is sometimes conflicted with concern about resource costs. This cost concern is less of an issue for more established and informed pension committees who view these costs much like a business investing in its own future.
What about plan members. Are they ready for a change—do they need one?
Our bet is that plan members will follow human nature and resist change. This resistance to change will ironically be the savior for most as those who cashed out when the days looked darkest are already regretting their decision to cash out while markets recover – even if it is a rocky road. In short, status quo for plan members if they have already adopted appropriate investment direction is likely just fine provided they continue to make an effort to better understand the investment aspects of planning for retirement.
Posted in Governance, Investment Consulting.
– August 14, 2009
